Real Estate Encumbrances and What They Mean for Your Transaction


An encumbrance is really just a fancy word for a burden or restriction on a piece of real estate. Essentially, it means any liability, claim, or limitation that exists against piece of real estate that can restrict the owner’s ability to transfer the title of the property to a buyer. Encumbrances can also lessen the value of the property, so it’s important to determine if one exists on a piece of property that you are trying to sell or one that you are trying to buy before you enter into a transaction.

Another way of looking at it is that it represents someone else’s right or claim to a portion of the property or to use of the property. There are several examples of encumbrances in relation to real estate. Below we discuss some of the most common.

Liens

Liens are just another way of saying that there is a monetary claim on a piece of property in order to secure an obligation or debt owed by the property’s owner. There are many examples and liens are among the most common type of an encumbrance encountered in real estate transactions. For example, the IRS can place a lien on your property for unpaid taxes. A County or municipality can record a lien for accrued fines in connection with open violations.  Court judgments can also create liens. Before you enter into any type of real estate transaction, it is very important to do a lien search and clear any and all liens before closing.   

Easements

An easement is very different from a lien. Easements represent the right of another person, a government entity or a public utility to use real estate that is owned by someone else for their own benefit. Easements transfer with title to property, meaning that an easement does not disappear just because the title is transferred to someone else. There are several types of easements. To keep things simple, a common example of an easement is when a gas company has the right to place pipelines on a property or when you grant your next door neighbor the right to cut across your property or share use of your driveway.

Encroachments

When property lines are unclear, it’s not uncommon for one neighbor to encroach (either purposefully or accidentally) on the property of another. This is even more common for those with bigger properties. A simple example is when your neighbor puts up a fence and it crosses over onto your property line. It doesn’t’ matter if it’s by a foot or by an inch, the length they have crossed over counts as an encroachment. This interference creates an encumbrance on both properties until the issue is resolved. The encroachment on the property that is encroached upon has free use, while the owner of the encroachment does not have title to the land it’s crossed over onto.

When an encroachment happens, the owner of the property that has been encroached upon has several rights which can negatively impact the ability to transfer title. Their rights can range from monetary damages or even the ability to force the other owner to remove the encroachment.

Deed Restrictions

When a deed restriction exists on real property, it means there is a restriction or limitation as to how a property may be used or on what type of structures can be built upon it. A deed restriction is also referred to as a covenant or condition. The most common example is when a new housing subdivision is built. Oftentimes, the developers or management company place restrictions in order to control how the property is used. These types of restrictions can have either positive or negative results on the value of the property over time.

Licenses

A license is a privilege in that it is the right granted from one party to another to allow them to utilize the real property. Licenses can be terminated at any time. For example, if you allow a friend to store something on your property, verbally or in writing, it means that you’ve granted them a license.

Speak with an experienced real estate attorney.

If you are thinking of entering into a real estate transaction, it’s very important to speak with an experienced real estate attorney to determine if your property faces any encumbrances. At Ser & Associates, we are uniquely prepared to help you make the right determinations about the purchase or sale of property. If you are looking to buy or sell property, please don’t hesitate to contact us today at 305-222-7282 or visit us at www.Ser-Associates.com to learn more about us.